Required Minimum Distribution Waived For 2020

Required Minimum Distribution Waived For 2020

The CARES (Coronavirus Aide, Relief and Economic Security) ACT has been passed by the Senate and House this past week. The $2 trillion-dollar relief package has many provisions. Within the tax/retirement section, required minimum distributions (RMDs) are waived for tax year 2020. So, what does this mean for retirees? The RMD waiver means that retirees, who can afford to, have the option to skip their 2020 distribution, giving that money an extra year to recover without penalty.

Q: What type of retirement accounts qualify?

A: Individual retirement accounts (IRAs), including beneficiary IRAs, as well as employer
retirement plans, such as a 401(k) or 403 (b).

Q: What if I turned 70 ½ in 2019 and have not taken my RMD yet?

A: This buys you another year. Not only do you not have to take your required distribution for 2019, your 2020 RMD is also waived.

Q: What if I took my RMD already this year?

A: Any distribution taken in 2020 can be placed back into an IRA in what is called an indirect rollover, provided you do so within 60 days and haven’t made any other indirect rollovers in the past year. This action will also prevent you from doing another indirect rollover for the 12 month period following the indirect rollover. If you’ve missed the 60-day deadline, you may want to consider putting the money into a Roth IRA. You do not avoid the tax consequence, but you will benefit from letting it grow in a tax-free Roth account.
*Note Beneficiary IRA’s do not qualify for the 60-day rollover.

Q: Are there any other planning opportunities I should be aware of?

A: Typically, if you take your required minimum distribution and would still like to convert more to a Roth IRA, you are paying taxes on both amounts. Due to the RMD holiday, the Roth conversion amount starts with the first dollar. The CARES Act temporarily increases the AGI limit on cash contributions made to charities from a maximum of 60% of AGI to a maximum of 100% of AGI for “qualified contributions”. Therefore, if you currently direct your RMD to a charity for a charitable rollover and decide to waive your RMD for 2020, you may still want to consider cash contributions or donation of appreciated securities from your non-retirement accounts to your charity. With the deduction up to 100% of AGI, you could potentially wipe out any 2020 tax liability with charitable contributions. The donation must go directly to the charity, not to a donor advised fund.